For the month of Oct 2014, we have released a very good investment recommendation for our Alpha and Alpha + members and would like to share with you details on the same.
Basically, looking at the delayed but an inevitable push towards industrial and infrastructure growth in India, we have recommended a very high quality company from Capital goods space (Name of the company – ***A** **S***) that not only sustained post 2008-09 crisis, but has emerged really stronger and is now on a path of very strong growth. Most importantly, despite the run up in markets, the stock is still available at very reasonable valuations.
Details on Oct 2014 stock recommendation
The stock that has been chosen for Oct 2014 recommendation is not only the leading company in India in its area of operations, but also arguably the best managed company among its competitors. Post 2008 crisis, when all other similar companies started reporting lower profits or losses and even plunged into CDR (corporate debt restructuring), Oct 2014 recommendation has almost doubled its profits since then, is now debt free with surplus cash and all this while maintained its return ratios in excess of 20%.
For the management of Oct 2014 stock, it’s never been about reckless expansions and growth as their focus has always been on profitable growth and delivering value for the all the stakeholders. At the same time, they have always tried to differentiate themselves by focusing on value addition and complete solution for their clients against providing run-of-the-mill products/services. A large part of company’s business is to make high end application products of which it is the largest manufacturer in the country. There are other players too in the field; however they largely make low end application products and therefore Oct 2014 stock enjoys a certain degree of monopolistic edge in its business.
As far as growth outlook is concerned, as per the management the company is now experiencing very strong traction in both domestic and export markets and expects strong order flows in the coming years. In fact, the current order book of the company is the highest in its history with a very good share of high margin products.
So, while at one end we expect improvement in sales growth, what is important to note is that since the last few years the company has been running its plants at ~50% capacity utilization and therefore with improvement in capacity utilization, the scope for growth in profits is much higher.
At the same time, for a debt free company with good growth outlook and strong return ratios, we believe the current valuations of 13 times TTM (trailing twelve months) earnings are very reasonable.
Operating performance – Let’s look at how the company has performed in the last 10 years as the competitive advantages should reflect in numbers as well:
- 10 years sales growth – 24% + CAGR
- 10 years EBITDA growth – 25% + CAGR
- 10 years PAT growth – 26% + CAGR
- Avg. Return on equity – 25% +
- Debt equity ratio – 0
- Cash flows from operations – In line with reported profits
- Dividend payout – 10% +
- Promoter holding – 50% +
You can get a detailed report on our latest Oct 2014 Alpha stock by subscribing to either of Alpha or Alpha + before 31st Oct’14.